GOLD
Debunking the Post-CFTC Precious Metals Fear Mongering Campaign
Erik Townsend
Ever since the March 25 CFTC hearing on position limits in the COMEX precious metals futures markets, the blogosphere has been on fire with talk of conspiracy, scandal and fraud. Those who understand the metals markets and how they work understand that most of the hype is nonsense. Townsend reviews what transpired, and debunks the false information. In summary: There is good reason to question JPMorgan’s concentrated short position in COMEX silver futures, and to investigate allegations that JPM used it to manipulate the silver market; GATA handled the matter poorly by focusing its attention on baseless conspiracy allegations pertaining to the London gold market, when it should be focusing on the evidence that is material to the CFTC investigation; Jeffrey Christian’s testimony at the hearing has been taken completely out of context, and allegations that it reveals a scandal or revelation are baseless; despite the best efforts of some responsible journalists (including Jim Puplava), others have contributed to the misinformation campaign by spreading GATA’s baseless allegations; there are legitimate reasons to be concerned about the ratio of “paper gold” to real gold, but they are not the reasons GATA has made such a fuss about. They also have nothing to do with leverage; investors should focus on understanding the inherent risks and limitations of their precious metals investment vehicles (the most popular are reviewed and contrasted). As for the allegations by Harvey Organ that there is little gold in Scotia Mocatta’s Toronto vault, Townsend says: “I don’t know this person [Organ] and wasn’t there, so I can’t comment personally on the veracity of his claims. But they were later strongly refuted by Mr. Nick Barisheff, a much more knowledgeable expert who stands to lose a whole lot more than Mr. Organ if Organ’s allegations were actually true. Frankly, the very fact that Mr. Organ is affiliated with the GATA people is a red flag against his credibility in my book. You should listen to both the Organ and Barisheff interviews yourself, and form your own conclusion. My money is on Barisheff.”
You’ve Heard of Peak Oil. How About Peak Gold?
Martin Mittelstaedt
There has long been a theory about peak oil, and now some analysts say gold too will begin an inexorable decline accompanied by sharply higher prices. This could result in handsome returns for those who invest in the yellow metal; some predict that gold could double from current price levels. Many precious metals experts say that, just like the output declines and dwindling reserves observed at aging oil fields, most of the best gold deposits are exhibiting the same geriatric tendencies, with their highest grades extracted long ago. Another similarity is that in both industries, the pace of large discoveries has decreased, despite higher exploration budgets and higher market prices. World gold output reached record levels in 2001, and has fallen since then, while the trend in recent discoveries has been disappointing. Metals Economics tracks new large gold deposits of more than two million ounces and, in recent years, the pace has been meager. Of the 62 major discoveries made from 1997 to 2008, almost half were found in the first three years. Those who contend that peak gold has already arrived point to the sharp fall in output among many of the major producing countries. South Africa, long the top global producer, peaked around 1970, and has been falling ever since. In recent years, production has been falling in the US, Russia, Canada and Australia. Some of the slack has been taken up by China, the top new producer, but there is skepticism that it can keep growing production. Many gold deposits there have poor reserves and are being rapidly depleted. One investment implication of peak gold is that it makes big producers unable to replace mined-out reserves less attractive than juniors sitting on newly discovered ore bodies. Typical of the trend away from big producers was the sale last month by NovaGold Resources Inc. of $175 million in new stock to Soros Fund Management and Paulson & Co.
Gold – Investment Demand Poised to Jump?
Julian Phillips
The euro and gold are de-coupling, but more important than that is what is happening in the world’s gold markets. It is becoming clearer and clearer that the gold price should not be moving with any currencies, since there are few common denominators between the two. Far more pertinent to the gold price is the erosion of confidence in currencies. Over the last year, gold has been consolidating and reacting to euro moves against the US dollar. But the drawn-out time frame suggests that something far larger than a simple consolidation. Banks have lost their pristine image and their position on the moral high ground; investors have become disillusioned with the global monetary system; confidence in all major currencies has dropped; the Eurozone is floundering. Because the yen, euro, pound and US dollar are all falling together, they appear to be relatively stable. But surplus holders and outside investors are not buying into that idea. In today’s divided world, there is no way of predicting how decaying confidence will be expressed, but Phillips is sure that no matter what, gold buying will be going only one way. The structural damage will involve not only banks and credit, but the appearance of capital controls and increased tensions between East and West; international trade relations could suffer following a bout of protectionism. In time, the Eurozone’s problems are going to become the world’s. An indicator of how close we are to multiple crises is the 10-year Treasury yield. Currently, yields are rising strongly and steepening the curve. In the climate Phillips describes this is bad news, and he expects gold to be viewed as a ‘retreat position’ in the face of uncertainly. High yield curves are a measure of where the gold price is going, but it won’t be growth as we have seen it in the last ten years. This time, it will be a strong move from the largest institutions into the yellow metal.
Professor Fekete and the Armageddon Signal
Darryl Robert Schoon
Schoon discusses Debt & Delusion, a book by Peter Warburton and The Future of Money, a book by Bernard Lietaer (both are seminal works that sold out of the first printing and were not reprinted); the Armageddon signal; money, power, elites and the euro; the West’s war on gold; and why governments help banks instead of people. In summary he writes: “When the global economy collapsed in 2008, governments rescued the banks, the very ones responsible for the collapse. This is because without the banks' debt-based paper money, governments could not spend the vast amounts they do not really have. Politicians seek power and bankers seek profit and their collusion is responsible for the present crisis. Do not be surprised at the current state of affairs, the motives of the participants are clear and so are the consequences. These are exceptional times and while we are helpless to prevent what is about to happen, so, too, are bankers and politicians. They have brought this state of affairs upon themselves and for this we should be grateful – for without their demise we would be enslaved forever… Buy gold, buy silver, have faith.”
